Sweden Inflation Gain Lends Backing to Riksbank Tightening Plan

(Bloomberg) -- Swedish inflation accelerated again in December, giving support to the central bank’s tightening plans after last month’s first increase in the benchmark interest rate in more than seven years.

Consumer prices with a constant interest rate rose at a yearly rate of 2.2 percent, above a 2.1 percent forecast by economists surveyed by Bloomberg and in line with the Riksbank’s own forecast.

Key Insights

In setting rates, the Riksbank also takes a close look at another measure of underlying inflation, which excludes energy prices. This came in at 1.5 percent, in line with the Riksbank’s own forecast.

At their final meeting of 2018, policy makers offered a cautious approach to tightening after years of extreme monetary policy, citing “uncertainty regarding the strength of inflationary pressures.”

Several analysts expect CPIF inflation to drop below 2 percent later this year, a development that would make it harder for the central bank to continue normalizing its monetary policy. The Riksbank board is due to hold its next rate-setting meeting on Feb. 12.

What Economists Say

Nordea economist Torbjorn Isaksson said there weren’t "any surprises" in Monday’s data and that the numbers don’t change much for the Riksbank. “We expect inflation to remain around the target over the winter but fall back by mid-2019. We expect the Riksbank to hike rates in December 2019 when the ECB takes it first step.”

Swedbank analyst Knut Hallberg described the inflation data as “quite a pleasant read for the Riksbank,” adding that “after the disappointing readings in October and November this is a relief. It should be krona positive.”

Credit Agricole strategist Manuel Oliveri said the core shows some signs of stabilization, which should prove sufficient to keep rate expectations stable.

Market Reaction

The krona erased losses against the euro after the report was released, trading little changed at 10.24 per euro as of 10:05 a.m. in Stockholm.

Know More

For more details, see this table

(Updates with comments from economists.)

--With assistance from Love Liman.

To contact the reporter on this story: Rafaela Lindeberg in Stockholm at rlindeberg@bloomberg.net

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Nick Rigillo, Niklas Magnusson